The invention relates to the field of banking and finance, and more particularly to the field of hedging credit risk associated with letters of credit.
In the finance and banking area, letters of credit are known. For a typical letter of credit, a company arranges for a bank to issue letters of credit to beneficiaries, with a promise from the company to reimburse the bank for any draw by the beneficiary on the letter of credit. The letter of credit may be part of a larger credit facility made available to the company by the bank.
In most contexts, the dollar value of the credit facility consumes credit capacity and impacts the bank's regulatory capital requirements, such that the aggregate dollar value of all the credit facilities a bank makes available is limited. Banks would like to be able to increase their capacity to provide credit facilities and associated letters of credit, without adversely impacting their regulatory capital.
What is needed are systems and methods in a manner that allow banks to efficiently transfer credit risk from credit facilities and associated letters of credit to the capital markets in a matter that also reduces the impact on their regulatory capital requirements.
The preceding description is not to be construed as an admission that any of the description is prior art relative to the present invention.